In the increasingly cloud-based IT landscape, efficient cost management is becoming ever more important. FinOps combines financial control and operational efficiency to make cloud spending transparent and maximise economic benefits. In this article, we look at the basic principles of FinOps and the associated challenges. We also present proven methods for optimising cloud cost control.
Efficient cloud cost management: the basic principles of FinOps
The FinOps Foundation defines six principles for efficient cloud cost management, which are designed to create a common understanding and responsibility for cloud costs:
- Collaboration: Teams that utilise resources should actively manage their expenses and reduce costs.
- Business First: The focus is on maximising business value, not just on cost savings.
- Centralised roles: A specialised FinOps team coordinates and promotes best practices within the organisation.
- Real-time reports: Up-to-date data is essential for well-founded decisions, which is why real-time reports are indispensable.
- Responsibility of the individual: Each individual takes responsibility for their cloud usage and costs.
- Dynamic cost management: The variable nature of the cloud requires constant monitoring and adaptation of resources.
These principles not only help companies to manage costs, but also to establish a proactive and conscious use of the cloud.
Inform, Optimise, Operate: The FinOps life cycle
The FinOps lifecycle consists of three key phases - Inform, Optimise and Operate - which help companies to systematically manage and optimise their cloud costs:
1. Inform: In this initial phase, the focus is on collecting data and understanding the current cost situation. The main tasks here are Setting up dashboards, cost centre accounting and creating awareness of expenditure.
2. Optimise: As soon as transparency is established, optimisation measures are initiated. This includes the rightsizing of cloud resources, the use of cost-saving models and the balancing of performance and costs.
3. Operate: This phase is characterised by the operational implementation and fine-tuning of processes. Important aspects include regular financial controls, updating budgets and maintaining alert systems for cost control.
Main tasks and challenges in FinOps
FinOps is a comprehensive financial management discipline for the cloud that includes cost monitoring, optimisation and strategic planning. It starts with detailed monitoring and analysis of cloud costs to uncover potential savings and also focuses on budgeting and forward-looking forecasts. Strategic planning through commitments such as reserved instances and the continuous adjustment of the resources used, known as rightsizing, help to maintain operational efficiency and reduce costs.
Furthermore, the precise cost allocation enables responsible resource utilisation and promotes cost awareness through showback and chargeback models. Alarm functions for budget overruns ensure proactive financial management and the ability to react quickly to changes. The range of tasks is rounded off by the establishment of robust governance, which includes guidelines and controls for monitoring and managing cloud expenditure.
Challenges:
- Complexity of the assignment: The correct allocation of costs in a complex and often shared cloud infrastructure can be challenging, especially when resources are used in multiple projects or departments.
- Resistance to change: Organisations may face cultural resistance when it comes to shifting responsibilities and getting teams to change their spending and consumption habits.
- Lack of expertise: As FinOps is a new discipline, the lack of qualified specialists can be a hurdle. This necessitates the need for training and continuous skills development.
- Data quality and integration: Ensuring high-quality data from different sources and integrating it into existing systems and processes are technological challenges.
- Limited tools: There are only a few tools available for automating FinOps processes, and they can be expensive and complex.
Strategic measures in FinOps
To be successful in the dynamic environment of the cloud economy, companies need to define and implement clear strategic measures. These strategies are essential for effective FinOps practice and help to optimise the financial management of cloud services.
The most important strategies that should be pursued in the context of FinOps are:
- Definition of KPIs and performance indicators
One of the first measures in FinOps is the definition of key performance indicators (KPIs) that help to measure the financial performance of cloud utilisation. These include aspects such as costs per customer, the efficiency of resource utilisation or adherence to the budget plan. - Understanding and managing the total cost of ownership (TCO)
TCO indicates how much the overall use of cloud services actually costs. Strategies for reducing the TCO include the selection of suitable service models, the management of pending services and the optimisation of existing contracts. - Dynamic cost management
FinOps requires adaptation to changing conditions. Companies should therefore pursue flexible budget approaches that allow them to react quickly to changes in cloud usage. - Governance and compliance
Strict governance rules and compliance measures ensure that all cloud operations comply with the company's internal and legal requirements. - Use of advanced technologies and automation
The use of technologies such as AI and automation can help to analyse cost trends, make predictions and simplify repetitive tasks. This allows strategic decisions to be made based on data and with minimal time expenditure.
These strategic measures are crucial to achieving the goal of FinOps: maximising the value and efficiency of cloud spending while promoting innovation and agility within the company. However, they require a change in mindset from all stakeholders and involve moving away from traditional finance practices.
Technical tools and platforms for FinOps
Technical tools and platforms are central to FinOps management. They help to gain insight into cloud costs and optimise them.
Effective instruments are, for example
- Native cloud cost management tools (AWS Cost Explorer, Google Cloud Cost Management, Azure Cost Management) make it possible to monitor, analyse and control costs.
- FinOps-centred platforms (e.g. Cloudability, CloudHealth, Apptio Cloudability) provide deep insights into the cost structure and support budgeting and forecasting.
- Automation and infrastructure management tools such as Terraform, Ansible or CloudFormation are crucial for managing resources and scaling the infrastructure.
- Monitoring tools and alerting systems (such as Datadog, New Relic) provide important performance information and notify in the event of deviations from cost forecasts.
- Business data analysis platforms (e.g. Tableau, Power BI) visualise complex financial data and provide deeper business insights.
- Resource optimisation tools (such as ParkMyCloud, Spot.io) help to identify and deactivate unused resources in order to save costs.
The skilful combination and use of these tools, tailored to the requirements of the company and the skills of the teams, is crucial for FinOps success.
FinOps competences
In order to master the challenges of cloud cost management, specific competences are particularly important for companies. The right combination of technical expertise, financial understanding and soft skills enables companies to effectively control their cloud expenditure and generate added value.
The following competences are a prerequisite for the successful use of FinOps:
- Data analysis and visualisation: Expert use of analysis tools is crucial in order to derive tangible decisions from financial data.
- Cloud-native knowledge: In-depth understanding of cloud environments and pricing models enables optimised use.
- Communication: The ability to communicate across departments facilitates collaboration between IT, finance and management.
- Budgeting and forecasting: Accuracy in financial planning helps to deal with cost fluctuations. The more precise the forecasting is, the more accurately the budget for cloud expenditure can be planned.
- Adaptability: Ongoing learning is necessary to keep pace with the rapid changes in cloud technologies. It is particularly important to learn from past experiences and to look at which expenses can be avoided in the future or what needs to be taken into account in planning.
- Automation: Knowledge of automation and its integration into business processes ensures efficiency and consistency in workflows. Standardised processes can save time and money.
- Governance: Enforcement of standards and financial guidelines form an important part of the FinOps framework.
FinOps at Claranet
Claranet uses its many years of experience to design efficient and cost-optimised cloud environments for its customers. To achieve this, we consistently implement the FinOps principles and measures described.
The most important components of Claranet's FinOps service are:
Cost Optimisation Recommendations and Actual Savings Tracker
Claranet offers over 60 ready-made recommendations for cost optimisation based on an in-depth analysis of cloud expenditure. The Actual Savings Tracker transparently shows the savings realised and makes it possible to measure the success of the measures in real time.
Detailed cost analyses with virtual tagging & cost allocation
Through virtual tagging and precise cost allocation, Claranet provides deep insights into the spend structure. This enables effective management and allocation of resources to different projects and teams.
Anomaly Detection
The Anomaly Detection function quickly identifies unusual patterns in spend and allows you to react at an early stage. The root cause analysis helps to continuously improve spend forecasts.
Transparent internal billing through rebilling - billing rules
Claranet simplifies rebilling with an intuitive UI for billing rules and ensures correct cost distribution within the company.
Rightsizing and reservation of resources
The professional services include the rightsizing of cloud resources as well as a precise actual and target status analysis of the infrastructure. Claranet also provides support with strategic decisions relating to the reservation of resources in order to save costs in the long term.
Showback/chargeback as a model for cost responsibility
By introducing showback/chargeback models, Claranet promotes transparent and fair cost allocation and billing within the company.
These services enable customers to manage their cloud costs efficiently, realise savings and establish transparent cost accountability within the company.